Small Business Management and Accounting Guru Kelli Wall has been walking us through the complicated process of setting up year end reports. With WorkingPoint, creating these reports is easy, which leaves you lots of time for things like present shopping and holiday parties!

Once you’ve set up your WorkingPoint account and performed your adjusting activities for the reporting period, the next step is to review your financial reports.

If you are new to accounting for your business or are just new to WorkingPoint reports, here is an overview of the Income Statement.

The Income Statement is the report most business owners use to gauge how their business is doing for a specific period of time because it answers the question: “Am I earning more than I am spending?” In the case of closing the books at year-end, the reports shows you how you did for the entire year. The Net Income line item at the bottom of the report tells you if you are making a profit (positive net income) or incurring a loss (negative net income). In addition to tracking profit, you can use the Income Statement (Profit and Loss) to spot trends in how your money is coming in, whether it is driven by season, product line or strategic marketing events and how your money is going out so you can budget for the future.

Here is a sample of the Income Statement report in WorkingPoint and how to read it:

Above the Line
Revenue earned and expenses related to the cost of selling your products or services (Cost of  Sales or COS) are commonly referred to as “above the line” items because they are what affect the profit of your business. For example, if you make a product and sold it for $1.00 and it costs you $0.40 to make the product, your revenue is $1.00 and your COS is $0.40.

In general, your COS reduces your taxable income so it is best to record all of your qualified expenses in your COS accounts as it make sense for your business and it falls within the law.

Accounts involved: Revenue, Cost of Sales

The Line
Gross Profit is “The Line” because it is what you have left over to work with once you take into account what it cost you to generate the revenue. This figure is generally your taxable income.

Accounts involved: None. This is a calculation only.

How it is figured:  Gross Profit = Revenue – COS
Using the same example as above, if you make a product you sell for $1.00 and it costs you $0.40 to make the product, your profit is $0.60.

Below the Line
Expenses and other income are often referred to as “below the line” because they just feed off the gross profit, reducing the profit to what you finally scoop up in your “net” to keep. Other income is considered below the line because it is revenue earned outside of normal business operations, so it is kept separate so not to skew your numbers.

Expenses, Other Expenses, Other Income

The Bottom Line
This is what you scooped up in your “net” to keep. This figure is transferred over to the balance sheet so you can track the amount you made or lost over the year.

Accounts Involved: None. Net Income is just a calculation.

How it is figured: Net Income = Gross Profit – Total Operating Expenses + Other Income – Other Expenses

A positive figure results in Net Profit; a negative figure results in a Net Loss.

Reviewing for Year End Close
Review all of your account totals as displayed on the report. Make sure things look good to you and are in-line with what you would expect to see. If anything looks off, click on an account link to view the detail of the transactions that make up the total. You may have chosen an account by mistake or entered a transaction twice or make a data entry error in an amount, for example total should be $1.00 and you have $10.00. If you find errors, this is the time to correct them.

The Net Income as displayed on your Income Statement is the figure WorkingPoint transfers to the Balance Sheet on a regular basis. At year end, this figure moves to Retained Earnings and becomes a permanent part of your earning history so you want to be sure it is correct.

Next time, I’ll take you through the Balance Sheet.

End of year reporting requires some planning to make sure that you have a complete and accurate picture of your finances. Small Business Management and Accounting Guru Kelli Wall has broken down all of the steps you need to set up for creating your end of year reports.

In Kelli’s last post, she covered adjusting entries and how you can use the Adjusting Entry form in WorkingPoint to account for depreciation and other end-of-reporting-period adjustments. In addition to adjusting entries, closing entries are made to “close-out” certain accounts balances at year-end and move them to Retained Earnings.

Before computerized accounting, accountants would manually record closing entries in temporary accounts (such as income, expense and dividend accounts), so the account balances would be reset to zero for the start of the next period. The entries would effectively zero out the individual account ledgers and increase a holding account called Income Summary.

The final step in completing the closing entries was zeroing out the Income Summary account and moving the balance to Retained Earnings. The Retained Earnings account value is, essentially, an accumulation of your profit that is retained by the business instead of being paid out to investors. Retained Earnings are viewable on the Balance Sheet report and reflect the amount retained by the business over the life of the business.

Today, in computerized accounting, much of this is done under the hood. No longer do you have to transfer balances from one account to a holding account and then move the holding account to Retained Earnings.

In WorkingPoint, we don’t consider income and expense accounts temporary. So unlike other popular systems, we don’t zero out the balance in the accounts. You can always see the amount you have earned or spent since you began using WorkingPoint to manage your business activity. You can always change the view of your activity lists so you can filter the activity for a specific date range but you’ll also always be able to see how much you have earned or spent to-date at a glance from the Accounts List. Reports also will show you the activity for these accounts for any date range you specify.

Even though we don’t zero out the account balances in your activity lists, we do zero-out your Net Income account and move the balance to Retained Earnings at the end of your fiscal year. By zeroing out your Net Income, you can start fresh for the new year and you can track the amount of profit retained by the business over the life of the business.

So, if you have a WorkingPoint account you can sit back and relax and know that WorkingPoint is handling your closing entries for you! And if not, maybe it’s time to set one up!

It’s time to start thinking about creating those end of year reports. We know, you’d much rather be looking at turkey recipes or picking the perfect holiday gift for Dad, but fear not! We’ve enlisted Small Business Management and Accounting Guru Kelli Wall, to walk you through closing your books at year-end.

In her last post, Kelli explained the accounting cycle so you could get a picture of how your business activity is recorded throughout a reporting period. She briefly touched on what happens at the end of the reporting period. Each business determines their reporting period length, i.e., month, quarter or year. No matter what time frame you consider a reporting period throughout the year, every business reports at least once for year-end. The end-of-year process includes recording adjustments and closing entries and generating financial reports.

In Part 2, Kelli will walk you through adjusting entries (using WorkingPoint as an example), which is an important part of wrapping up your financial reporting at the end of the year.

ADJUSTING ENTRIES

Adjusting entries record changes in account balances that occur outside of normal business operations, e.g. bills and invoices, etc. Account balances change for a variety of reasons but in general there are two types of adjusting entries: accruals and deferrals.

Accruals
Accruals are recorded to change the balance of an account when the expense or income has not yet been realized (before the transaction has been recorded). For example, let’s say you pay your employees every other week. The pay period may straddle two reporting periods, or months. If you waited to record the full payroll expense in the second month, then your payroll expenses for that month would be over-reported and your payroll for the previous month would be under-reported. By recording the percentage of the expense in both months according to the percentage of time worked in each month, you are recording an accrual adjusting entry.

Other common accruals include:  Past-due expenses, Income tax expense, Interest income, and Unrecorded revenue.

Deferrals
Deferrals are recorded to change the balance of an account after the transaction has already been recorded. Prepaid expenses are a good example of this. Let’s say you prepay your auto insurance for the year. Your initial transaction would be to record the prepayment (Debit: prepaid insurance and Credit: Cash). Each month your insurance company is providing you coverage so you are using up a month’s worth of their service. A deferral adjusting entry moves the portion of the prepayment you used each month and moves it from an asset account (prepaid insurance) to an expense account (insurance fees).

Other common deferrals include: Prepaid rent, Office supplies, Depreciation, and Unearned revenue.

To record an adjusting entry in WorkingPoint:

1. Go to the General Journal (Reports > General Journal)
2. Click Record Adjusting Transaction (in the right sidebar), a form will display
3. (Optional) Enter a reference number for the entry.
4. In the Account field, choose the account for the first distribution amount.
5. In the Debit field, if you are debiting the account selected, enter the amount in the Debit column.
6. In the Credit field, if you are crediting the account selected, enter the amount in the Credit column. WorkingPoint displays running totals at the bottom of each column as you enter credit and debit amounts
7. (Optional) In the Contact field, enter the customer name, vendor, or other name associated with the amount.
8. (Optional) In the Notes field for an entry, add a note for the particular entry to explain the adjustment. (You can add a memo for the entire transaction in the Transaction Memo field.)
9. Continue selecting accounts to debit and credit until the transaction difference total reaches a zero balance (the total in the Debit column equals the total in the Credit column). Click Add Line if you need to use more accounts.
10. (Optional) In the Transaction memo field, add a memo for the entire transaction.
11. Click Save Transaction.

If the Save Transaction button is not active, make sure that:

• All entered debits and credits have an account selected
• At least one debit and one credit have been entered
• Debits and credits are balanced

Once your adjusting entries are recorded, you are ready for closing entries – which I will cover next time!

Thank You New York Times’ Small Business Blog for your glowing review of our product!

” WorkingPoint was designed as an online accounting system for the accounting-oblivious business owner who’s focused on selling and delivering — and on managing inventory if there is one. When you log on to WorkingPoint for the first time, it walks you through the one process that every business owner knows and even loves: creating an invoice.

I gave it a try — hey, as a self-employed writer I’ve been running a business for a few decades — and ended up with my first computer-generated invoice ever. It took seven minutes, most of which was spent typing in information, like my address, that I wouldn’t have to enter the next time. When the invoice was finished, I was able to pull up my first profit-and-loss statement and my first balance sheet. (I’m in the black! This month, any way.) Although WorkingPoint provides a fairly full set of accounting capabilities, you wouldn’t know it by what you see on the screen. Instead, it looks as if it’s there to help you get your customers to pay you, to pitch new customers with quotes, and to track what is or isn’t going out the door; the accounting happens automatically.”

Our favorite part:

“I also tried several other online small-business accounting systems, and none of them was as easy to set up and start using.

Xero and QuickBooks would initially be slow going and probably anxiety-producing for the bookkeeping clueless, and the array of more advanced capabilities these sites prominently place at your fingertips doesn’t exactly scream, “Welcome, accounting newbie!” FreshBooks is cleaner and easy to use but still doesn’t quite match WorkingPoint when it comes to a truly stripped-down, intimidation-free means for getting organized.“

In the comments section there were also some great questions that we wanted to address, thanks so much for asking such great questions!

1. What happens if the on line business goes out of business. Where does your companies financial information go? Is there a migration path for how to move your information out once your business gets too big for the “small company” that you run?

If WorkingPoint were to go out of business, or if you were to become a giant company too big for this solution or you just want a CSV version of your data… exporting your data from WorkingPoint is ridiculously easy. You can find instructions on how to do so in our support section. All your data in WorkingPoint can be downloaded just by clicking on the CSV icon which is located next to all of the different types of data (CRM, contact lists, accounts lists….).

2. What is the privacy level of your information?

WorkingPoint has the highest level of internet data security available, the same level of security that your bank has. We have to, we allow you to link your WorkingPoint account to your online banking so you can import transactions with a click of a button!

Your critical business data is far more secure in WorkingPoint than it would be on your own computer. Security has been built into WorkingPoint from the very beginning, and we work continuously to ensure that WorkingPoint remains secure and your data stays safe. You’ll never lose data if your computer crashes. We use Amazon EC2, so our service runs with the proven network infrastructure of the world’s biggest and safest e-commerce company. We use the same internet security technologies that banks do, so your data is bank-grade secure with 128-bit Secure Sockets Layer (SSL) Encryption. Your data is continually and reliably backed up. Plus, your WorkingPoint site is automatically updated with the latest, most secure version – no complicated installs or security patches.

3. How accurate will your information be and how easy is it to correct mistakes? I often see the “simple” accounting packages can get you incorrect information because they don’t require double entry when putting information in. Remember garbage in, garbage out.

WorkingPoint uses Double Entry Bookkeeping.

Double-entry bookkeeping is at the heart of good financial management for any business. It follows a set of standards used by accounting professionals to record businesses activities and interpret business finances. The alternative to the double-entry bookkeeping method is the single-entry method, also known as the checkbook method because it is similar to tracking your business activities using only a checkbook. This works fine for individuals managing their personal finances, but it just doesn’t cut it for businesses.

In double-entry bookkeeping, each time you perform an action that has a financial impact, a transaction is recorded. It’s called “double-entry” because each transaction is recorded in at least two accounts: a source account, or where the money comes from, and a destination account, or where the money goes. For an example, consider what happens when you write a check to purchase office supplies. The source of the funds is your business checking account. The destination account is the expense account you set up to track office supplies.

In computerized accounting, like WorkingPoint, you don’t have to record transactions directly into the ledger. Instead, you use specific forms, like Deposit, Invoice, and Bill, to record your business activity. But under the hood, credits and debits are still being recorded to keep the books in balance.

WorkingPoint is proud to announce our annual pricing discount. This discount rewards our most loyal users with free months of service when you pay for a full year of service up front! With annual pricing you get a month free of our lightening plan or 2 months free of our premium, thunderstorm membership! That’s tremendous savings on the least expensive, most robust financial accounting solution available for small businesses. Don’t forget all paid plans also can access accounting advice and support from our highly trained small business management and accounting staff! With end of year reports and taxes right around the corner, now is the time to sign up and get started.

Stay tuned for the rest of our end of the year reporting series with our senior small business management and marketing guru Kelli Wall.

Have any questions about which plan is right for you and your business?

Thanksgiving is a few weeks away, where has this year gone? In addition to making your holiday gift list, and booking tickets to visit family, now is also the time of year to start thinking about your end of year reports. If you’ve never done this before, this can be a really scary and daunting process. You may be gathering your depreciation schedules and adjusting entries to close your books, preparing to print your financial reports for the year, and getting ready for a new year of recordkeeping. Or you may not even know what any of these words means… Like  I did before I read through the WorkingPoint Blog archives.

As an early holiday present for all of you, we’re reprinting and revamping our “Closing the Books” series to help you prepare for your end of year reporting. WorkingPoint makes it easy to transition from one year to the next by providing you easy ways to record your adjustments, we even handle some of them for you!  So before you get overwhelmed at the thought of end of year reporting and let it ruin your holiday plans, stay tuned for our end of year reports series and let us help you to make this process easy and painless!

If you just started your business or you’re new to accounting for your  business records, Kelli Wall, a small business management and accounting guru is here to walk you through closing your books at year-end, starting with a look at what is involved in keeping records for your business from a process standpoint.

What is the Accounting Cycle?

The accounting cycle is a series of steps that are taken to process your paperwork and generate meaningful financial reports. The accounting cycle is the same for every business. But you can determine the frequency of the cycle based on your business structure (sole proprietor, S-Corp, Corporation, etc.) and reporting period requirements. A reporting period is the date range that you want to report on. Standard reporting periods include month, quarter, and year. A lot of business owners want to see how their business is doing month-to-month, so their reporting period is month. For them, the accounting cycle starts at the beginning of the month and closes at the end of the month. Businesses that choose this frequency tend to have many transactions per day or month, want to keep a close eye on revenue and expenses, and don’t want to fall behind on data entry. If you are just starting out and don’t have a lot of transactions, you could start at a quarter reporting period and then, as your business grows, you could change it to month.

What steps are involved in the accounting cycle?

The accounting cycle includes a set of activities performed during the reporting period and another set of activities performed at the close of the reporting period.

During the reporting period:

For every event that occurs that has a financial impact, a transaction needs to be recorded in WorkingPoint. The following steps should be taken each time a financial event occurs:

• Identify the event—This is often triggered by the receipt of a source document, such as vendor bill or receipt, or it could be the result of a phone call or other interaction that resulted in an event, like a sale you made over the phone.
• Analyze the transaction—Look at the document and gather the details including date, amounts, and accounts affected so you can determine what type of transaction it is (deposit, invoice, payment, etc.).
• Record the transaction—Using the event-specific forms in WorkingPoint or the adjusting entry form, record the transaction. WorkingPoint will update your accounts and the journal accordingly.

Repeat these steps as transactions occur. Keeping your records up-to-date will allow you to use helpful dashboards in WorkingPoint so you can see where your business is at a glance anytime and you won’t have to play catch up at the end of the month or year.

End of the reporting period

At end of the reporting period, perform the necessary closing activities, including:

• Making adjusting and closing entries—WorkingPoint performs some closing activities for you, like tracking your net income and transferring your retained earnings at year end. But there are other activities you might need to perform at the end of your reporting period, including posting depreciation and accruals (like prepaid expenses).
• Generating financial reports—WorkingPoint takes the hassle out of reporting by providing real-time, professional financial reports. You don’t have to transfer your business data to another system to generate reports. If you are incorporated, your financial statements are published for your shareholders, so it is important to practice regular closing activities and generate and distribute your reports. If you are a sole proprietor, you might only print these at year end for taxes.

So now that you are familiar with the process of recording your business activity, next time I’ll walk you through “End of the reporting period” activities that you will want to do as part of your year-end closing for 2009.

You have just invented the next big thing and you’re ready to produce and sell it…  now what? You may or may not have  thought about accounting, realized that an excel spreadsheet isn’t going to cut it. Maybe you’ve even set up a payroll software. Maybe a hosted accounting software has crossed your mind so you can track your profits and expenses….but if you have stuff you’re going to sell there’s one more technological wonder you should invest in: Inventory Management Software.

Inventory Management: An Overview

Inventory management is a lot more than just counting your stock.
It covers everything related to the purchase, cost, price, storage, sale and care of those physical goods. Depending on what your inventory is this will vary as dramatically as the type of goods you are offering. Clothing retailers will have different needs then a perishable food product or a company that produces something that requires parts or ingredients to assemble.

WorkingPoint, regardless of the unique needs of your business, recommend that you find an inventory management solution that  allows you to keep track of the essential data necessary for successful inventory management.

These include the ability to:
Purchase Products & Automatically Increase On-hand Quantities
Sell Your Products & Automatically Decrease On-hand Quantities
Track & Monitor the Sales of Your Products
Know How Much Product You Have On-Hand
Track the Cost & Value of Your Products
Handle Your Cost of Goods Sold For You
Adjust Inventory Levels Manually

Why is how I manage my inventory so important?

If your business is based on making or buying a product and then storing it until a customer purchases it, your business is known as “inventory based”. If your business is small, you need to reserve your cash for a lot of uses, inventory being only one of many. Simply put, you probably can’t afford to tie up all your cash in inventory! This is known as “operating on a just-in-time inventory basis”— meaning you order products to fill immediate orders with a limited backstock and then update your inventory as it sells.

At WorkingPoint , we believe that to manage your inventory efficiently, you need to know what you have on hand so you don’t oversell or over promise your goods to your customers. You also need to know what you don’t have or are running low on so you can make or order more. Plus, you need to know the cost of your goods so you can price your products competitively and be profitable, and know the value of the inventory you have on-hand and your cost of goods sold so you can accurately determine your profit and compute your taxes.

With all the complex factors involved in running a business, streamlining and simplifying your inventory management is so important to your businesses success. This is why picking an inventory management software is so important!

We don’t like to toot our own horn too often but the inventory management software built into WorkingPoint will simplify the process by giving you an easy to use, ready built system. Plus it will back up your data and store it securely, no paper to lose or damage, and you can access your inventory information from anywhere there’s internet. When it’s time to reorder you can utilize the ability to easily sort and view data and create reports to help you figure out what to restock. For just $9 a month you can protect yourself from inventory errors that could cost you hundreds of dollars!

Reposted Courtesy of Katrina Lake

There was a time when finding a discount was exciting and fun, like winning a treasure hunt. But with all of these discounting sites– from the flash sales of Gilt and RueLaLa to the daily discounts of Groupon and all of its clones– it’s quite easy to find a deal. As a result, the thrill of finding a deal has been replaced by the anxiety, agony, and fear of potential regret of paying full price.

Frankly, what brands have done by heavily discounting their merchandise and services for short-term individual profit has been incredibly myopic and potentially extremely destructive and profit eroding to the industry overall.

Let’s take jeans as an example. J Brand, Rich & Skinny, James Jeans, AG Jeans, Joe’s Jeans, Paige– ALL of these premium jeans brands have been in one of the flash sales sites that I subscribe to in the past TWO WEEKS. Literally. In today’s J Brand sale at Gilt, all of the jeans are more than 50% marked down– $89 down from $178, $79 down from $238. Why would any rational person ever pay full price?

These premium jeans brands are basically a bunch of lemonade stands on the same block. They all started at $5.00, and then one vendor decided they were going to sell at $3.00 for one day in order to take all of the business for that day. The next day, another vendor does the same thing, and then another, and next thing you know, no consumer is ever going to pay $5.00 for a lemonade again and you will only be able to sell your lemonade if you’re selling it for $3.00.

Particularly for items such as jeans which can take on commodity characteristics, this is a dangerous round of game theory and one where brands are dog fighting for short-term market share at the risk of long-term profit potential destruction.

But aren’t low prices great for consumers? I’m not convinced. MSRP prices are going to have to rise in order to accommodate room for discounting, and thus there will be a greater number of price points that people are paying for the same item or service. It’s so confusing now what price you should expect to pay, or what constitutes a good price for something. Searching and shopping has become much more time consuming and frustrating. I miss the old system– one full price that feels fair, discounted after a certain amount of time to clear inventory– it was predictable, easy to understand, and required much less search or regret.

Unfortunately, I don’t see a path of getting out of the discounting cyclone without the brands colluding together to not participate in these sites or with as heavy of discounts– this, of course, is technically illegal and improbable with so many brands and retailers affected. Are we stuck with this system of commoditized impulse discount purchasing and opaque pricing forever?

About the Author: Katrina worked at Polyvore, Leader Ventures, and The Parthenon Group before becoming a student at Harvard Business School. She is currently working with a group researching how SMBs use Twitter. Take her short survey on how you shop!

Digital business accounting software like WorkingPoint has some really awesome features and one of my favorites is inventory management. I still remember being a child, helping my mom out in her beauty salon, painstakingly counting the bottles and then putting hash marks in a paper notebook. Now with hosted accounting software, you get a sleek, easy to use inventory management software that far exceeds the usefulness and possibilities of that paper notebook.

How can you make the most of this technology to help you run your business better?

Inventory Management Best Practices

1) Take a Periodic Physical Inventory and Make Adjustments

The sad reality of running a business is that no matter how diligent you are at some point your actual inventory quantities can get out of sync with the quantities stored in your inventory management system. Some of the most common culprits are spoilage, breakage, theft, or data entry errors. The best practice is to schedule regular <em>physical</em> inventories of your products so that you have a failsafe built into your inventory management system. After the physical count, make sure to update your system or software so the quantities stored there match your actual quantities. How often should you schedule checks? The size of your business should determine how often you check. How closely will overages and shortages effect your bottom line? Choose a monthly schedule, others quarterly or even yearly schedule based on your individual business needs and resources.

2) Write-off Breakage or Spoilage as it Happens

If you experience:
– frequent breakage or damage of your products
– your product has a short life span
– spoilage

If your business experiences these inventory changes, it’s incredibly important to develop a system to easily keep track of these trends. WorkingPoint suggests you keep a clipboard in an easily-accessible location so you can write down important information about your unsellable goods. Develop a simple form with the product name, how many units you lost, why you can’t sell them and the date you pitched them so you can quickly fill in the data.

Before you take your scheduled physical inventory or close your books for a period, make sure to adjust the quantities in your inventory management software to get the unsellable products off your books. This will keep your inventory quantities current, your inventory valuation accurate, and reduce your tax liability.

3) Review Your Available Quantities Before Placing Orders

WorkingPoint Inventory Management Software lets you filter the items list to include only inventory items, so you can easily create a Stock Status Report. If your inventory management software can’t do this for you, make sure you create a list of all the products you keep in stock along with their current available quantities and review the list online or print it out to see what you need to reorder before you place an order.

At WorkingPoint our mission is to help you to run your business better. We want to be more than just business accounting software. We want to be the small business accounting tool that also helps you to manage your business. And managing your business means more than just having a great business accounting software, CRM, inventory accounting software,or in fact any kind of software at all. Having a great business management software means you have time to do all the things you need to do to run your business, accurate bookkeeping, marketing, SEO, social media marketing, community development, product innovation…. you name it.

With this thought in mind, we want to create some how-to videos and resources to help you run and manage your business better. What do you need to be successful? What do you wish you knew more about? What do you want to learn? Take this short survey and let us know what kind of free content we can produce to help you manage your business better. Do you want to know more about geolocation? Profit loss statements? SEO? Be creative, there’s no topic off limits!

Take this quick 2 minute survey and tell us what you want to learn! We have access to expert accountants, social media gurus and more to help you run your business better!

Take the Survey!